February 2009

February 28, 2009

We have a story in this morning's Star-Telegram about complaints Southwest is getting from some passengers about "SI One," the Boeing 737 with a giant Sports Illustrated swimsuit model painted on the fuselage.

"Many women do not enjoy having their husbands exposed to explicit pictures or explaining to young children why the lady on the plane is 'showing her boobies,’ " one passenger wrote in a letter to the airline. "I would cancel my tickets if there was time to get a competitive rate."

Analysts Jamie Baker and Mark Streeter of J.P. Morgan write in an new report that travel demand is down sharply, and they expect February and March revenue to decline as much as 20 percent at the big airlines. Despite this, they still expect the industry to be profitable overall this year, although American and United may end up posting losses.

Still, they write, don't expect any more steep cuts in capacity, at least not any time soon:

No More Capacity Cuts Expected. Planning can take several months, so any cuts today would negatively impact the summer peak. Furthermore, airlines last got serious about capacity cuts as EBITDAR margins approached zero, well below what we (and managements) are forecasting. Lastly, recessions are temporary by definition. While we’d love to be proven wrong, we do not expect additional material capacity cuts unless oil moves sharply higher, though the carriers still enjoy the contract flexibility to prove us wrong.

The federal budget proposed yesterday by Barack Obama would hike passenger security fees in 2012 by an undisclosed amount, according to a report at CNN.com. Administration officials say the current fee - which totals $2.50 for each leg of a trip with a $5 maximum - captures just 36 percent of the cost of aviation security.

The Air Transport Association, an industry trade group, has vowed to fight the proposed hike.

Looking for more evidence that travel demand is getting scary? American Airlines announced this afternoon that it is putting nearly all of its international destinations on sale for travel from now through mid-May. This includes the usually-busy spring break weeks in March.

The sale includes one-way fares from D/FW to Monterrey, Mexico for as low as $142, to Paris for $277 each way and to Buenos Aires for $497.

These big sales we've been writing about for weeks now are a strong indicator that demand has deteriorated, perhaps substantially.

Dan Reed of USA Today (who used to cover airlines at the Star-Telegram) reports today that Virgin America "might be the most endangered airline in the U.S.A."

Reed writes that U.S. investors may soon exercise options forcing British holding company Virgin Group to buy back their shares. The could result in a majority of Virgin being owned by a foreign entity, which is a violation of federal law.

Virgin Group is run by legendary industrialist Richard Branson, who has long stressed that Virgin America is completely independent.

Still, some of Virgin America's rivals have already called on the Department of Transportation to investigate the airline's ownership. If it's determined that the airline is in violation of the rules, the government could yank its certification, which would basically kill the company.

The 19-month-old carrier is looking for new investors, says CEO David Cush. Still, analyst Mike Boyd told USA Today that "the question remains, can they make money? Unless they can line up new U.S. investors to put money in, and I frankly question whether they can do that in the current market conditions, it raises the question of just what is a U.S. carrier?"

Alaska Airlines launched a trial of its in-flight wireless Internet service today on a specially equipped Boeing 737-700 jet. The satellite-based service is being developed by Row 44, a communications firm that is also creating a Wi-Fi system for Southwest Airlines.

The service will be free during the trial, which will take place on flights between Seattle and San Jose during the next 60 days. After the test period, Alaska will decide on a schedule for rolling the service out to its entire fleet.

“We’re thrilled to be able to offer our passengers a way to stay connected to what matters most to them while en route to their destinations,” said Steve Jarvis, Alaska’s vice president of marketing, sales and customer experience, in a prepared statement. “This is a service that everyone can use, whether it’s for business or entertainment. Our service gives passengers a choice in how they spend their time while traveling and enhances the inflight experience.”

The International Air Transport Association reports this morning that global airline traffic continued to slump in January. International passenger demand fell by nearly 6 percent compared to January 2008, worse than the drop recorded in December.

It's the fifth consecutive month of contraction, the trade group said. Cargo demand is also down sharply, with a 23 percent drop in January.

"Alarm bells are ringing everywhere," said Giovanni Bisignani, the group's CEO. "Every region’s carriers are reporting big drops in cargo. And, aside from the Middle East carriers, passenger demand is falling in all regions. The industry is in a global crisis and we have not yet seen the bottom."